Marcellus’ Portfolio Updates & Insights – November 2025

The Long-Awaited Policy Response is Here

The employment, wages and consumption slowdown that has played out in India post-Covid has now been recognised by India’s policymakers. Whilst their policy response has been substantive (especially with regards to boosting consumption, the mainstay of India’s economic growth), the structural issue of helping middle class India deal with a massive labour market transition – away from salaried jobs to a gig economy – still remains. The consumption-centric economic model that has worked for India since 1991 is breaking down under the strain of tech advances. India has to build a new economic model and the journey to a new normal is likely to be painful.

Portfolio Outlook

October was a positive month for both the portfolio and equities, with GCP and the S&P 500 up ~2%, while the equal-weight index was down ~1%, underscoring continued market concentration. Earnings season was active, with recurring themes of strong AI-related capex and new partnership announcements. Investors, however, are becoming more cautious as funding sources and off-balance-sheet structures among hyperscalers and “neoclouds” come under greater scrutiny.

Outside technology, high-end consumer demand shows early signs of stabilising. A strong equity market over the past 2–3 years may create a modest wealth effect, though this is not guaranteed and could be offset if markets weaken or consumer confidence remains subdued.

October also marked GCP’s three-year anniversary and we shared a lot on our latest newsletter. We remain grateful for your trust and patience, which allow us to stay disciplined and focused on long-term compounding

Concentrated portfolio of heavily moated companies that can drive healthy earnings growth

Portfolio Outlook

From a macro-perspective, we see tailwinds to our portfolio companies from the recently announced GST rate changes (high exposure to autos and B2C consumption) and a moderation in loan book growth for banks and NBFCs. We expect healthcare services to see a structural rise in penetration over the next 10-15 years (high exposure to hospitals, diagnostics and insurance). We have increased position sizes in an attempt to benefit from significant pessimism baked into the share prices of companies such as Info Edge and CMS, funded by trimming of position sizes in stocks which have rallied significantly over the last 12 months. Key risks to some of these changes: weakness in consumption and household incomes.  Overall, we expect quality as a style factor to do well over the next few years, as few companies use their strengths to tide over an otherwise moderate growth in the broader economy. Key risk to these expectations remains a significant drawdown in the broader market due to elevated valuations and weak earnings growth of the benchmark indices. CCP’s approach towards portfolio concentration and absolute return orientation is well suited to such an environment.

Portfolio Outlook

Following the broader market’s year-long time correction, growth valuations are becoming reasonable. While maintaining our bottom-up approach, we have allocated nearly two-thirds of the portfolio to large caps to avoid stretched mid and small-cap valuations. However, as stock prices begin reflecting more realistic expectations, we are now tilting the portfolio from defensive positions toward growth themes.

In Q2FY26, portfolio EPS growth improved to 14% YoY. We remain positive on healthcare, private financials, and select industrials, expecting market share gains. Additionally, we anticipate improvements in financials and consumption in the second half, driven by GST, CRR, and tax cuts.

We continue to avoid energy, utilities, and real estate due to inconsistent RoCEs. While adverse regulation remains a risk and valuations are elevated, recent moderation offers an attractive setup for quality companies.

Portfolio Outlook

The earnings outlook for financial services companies is improving, driven by (a) a strengthening credit cycle, (b) rising demand for auto, gold, and personal loans, and (c) the expected improvement in bank margins from Q3FY26 onwards. In this context, we believe that with the time correction over the past year and the anticipated acceleration in earnings, KCP is well positioned at a sweet spot. We are increasingly focusing on companies that have undergone a challenging asset quality cycle or a slowdown in growth due to macro headwinds over the past 12–15 months. We believe several such companies are well poised for normalization in asset quality. Accordingly, we have reflected this view in our position sizing and continue to look for similar opportunities to anchor the portfolio in this direction, provided we gain further confidence in the ongoing recovery. We have started adding back to select names in the capital market space as we believe headwinds are receding and valuations are not stretched for those names. 

Portfolio Outlook

Both LCP and RGP portfolios put up a decent show in 2QFY26 with median net earnings growth of 11% YoY registered by the portfolio companies. Generally, domestic oriented portfolio companies fared better whilst export oriented (impacted by US tariffs coming into effect) and chemical stocks underperformed. Post the recent correction, we see opportunities to deploy some part of the cash in names which have seen sharp corrections but where we expect the impact on the fundamentals to be relatively limited. This has also resulted in the cash holdings coming down from the highs of September 2025. We continue to monitor the economic environment closely to make appropriate adjustments in the portfolios. Significant expansion in our small-mid cap coverage will also help in this regard.